MarkCotton

The Dow Jones Industrial Average
DJIA, -1.24%
ended down 6.72 points at 10,626.35.

The Nasdaq Composite Index
$COMPQ
put in a fractional gain, up 0.67 point at 2,016.42 while the S&P 500 Index
SPX, -1.54%
edged up 2.14 points to 1,190.21.

"The market is being weighed down by the price of oil as well as (the level) of interest rates and concern about what the Fed might say at their meeting next week," said Robert Pavlik, portfolio manager at Oaktree Asset Management.

Pavlik said the market is concerned growing inflationary pressures in the economy could force the Federal Reserve into becoming more aggressive about raising short-term interest rates.

Fellow Dow component General Motors
GM, -2.10%
fared less well, extending a 14 percent decline in the prior session as the automaker's stock continued to reel from its profit warning Wednesday. GM ended down 2.3 percent.

Meanwhile, shares of American International Group
AIG, -2.06%
gave up 3.3 percent after the insurer said it would delay filing its annual report due to its recent boardroom shuffle, which included the departure of its longtime chief executive, Maurice "Hank" Greenberg.

In the broader market, advancers outpaced decliners by an 18 to 13 score on the New York Stock Exchange, while winners and losers were evenly balanced on the Nasdaq.

By sector, biotechnology companies
$BTK
semiconductors
SOX, -2.58%
brokers
$XBD
and computer hardware
$GHA
stocks all moved higher, although gains were less than 1 percent.

Energy
$OIX
and oil services stocks
OSX, -1.06%
also put in a solid performance on the rise in crude prices.

Volume was nearly 1.6 billion on the Big Board, and 1.7 billion on the Nasdaq.

Crude backs off new highs

The high price of oil continued to rattle equity traders as the benchmark crude contract tapped record highs above $57 a barrel in early trading before paring gains.

The overnight spike in crude came after the Organization of Petroleum Exporting Countries revised its 2005 world oil-demand outlook higher in its March monthly report.

"With the refinery situation lacking any spare capacity, as the facilities continue to crank out heating oil because of the late spurt of cold in the Northeast, many plants have not had time to switch over to making unleaded and for basic maintenance," said Kevin Kerr, president of Kerr Trading International.

Kerr added that U.S. consumers can expect record gasoline prices this summer. "We predict an average retail summer gas price of $2.80 nationwide and in some places considerably higher."

Crude for April delivery ended down 6 cents at $56.40 a barrel, just under its record high close of $56.46 reached in the prior session. In early trading it hit a new all-time high of $57.60 intraday. See Futures Movers.

Mixed data

Investors also had to contend with a mixed batch of data.

Manufacturing output in the Philadelphia region fell to a 20-month low in March, the Philadelphia Federal Reserve bank said in its monthly survey.

The Philly Fed's index fell to 11.4 from 23.9 in February. Readings over zero, however, still indicate expansion.

Elsewhere in the survey, the new orders index rose to 13.2 from 11.7 in February, while the employment index fell to 10.1 from 12.3 in February. Economists were expecting the Philly Fed index to fall to about 19.9. See full story.

Earlier, U.S. weekly initial jobless claims fell 10,000 to 318,000, the Labor Department reported. Economists polled by MarketWatch had been forecasting a decline to 316,000. The four-week average of new claims, which is considered a more accurate measure of the job market, rose in the same period. See full story.

The index of leading U.S. economic indicators increased 0.1 percent in February as expected, according to the Conference Board. The index is designed to forecast economic trends six to nine months ahead.

In addition, the dollar firmed against the world's major currencies, after having fallen sharply a day earlier as current account data refocused investors on record U.S. trade and budget deficits.

"Though U.S. fundamentals certainly appear troublesome, especially in view of rising oil prices, the eurozone economy is faring much worse," said Boris Schlossberg, currency analyst with Forex Capital Markets in New York.

"This dynamic may prevent [euro-dollar] from making new highs, at least until significant new information becomes available to the market." See Currencies.

Gold futures traded lower as the strength in the dollar sapped interest in the precious metal. See metals stocks

On the bond market, Treasurys rallied for a second straight session as worries over the price of oil and a weak equity market sent investors scurrying to the relative safety of U.S. government debt issues.

The benchmark 10-year note ended up 10/32 at 96 8/32, with its yield at 4.52 percent. See Bond Report.

Stocks in focus

On a more positive note, investors have a healthy level of deal activity to mull over.

Qwest Communications International
Q, -0.96%
confirmed early Thursday that it has made a revised offer to the board of MCI Inc.
MCIP
to acquire the long-distance carrier.

The company said its offer is now 25 percent higher than the bid for MCI by Verizon Communications
VZ, -1.07%

Qwest shares fell 2.1 percent to $3.74, while shares of MCI were down 2 percent at $23.27. Verizon dipped 0.4 percent to $35.21. See full story.

Meanwhile, Toys "R" Us
TOY, -0.76%
confirmed Thursday that it is being sold to a private investment group for $6.6 billion, plus debt, in a deal that far exceeds earlier offers and intentions. The company's stock climbed 5 percent to $26. See full story.

Also, Class B shares of Viacom Inc.
VIA
the most heavily traded of the media group's two classes, were up 2 percent at $36.72 as investors welcomed its plans to consider splitting into two. See full story.

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